Official Opinion 95-12

Flood insurance premiums collected by private insurance companies pursuant to the National Flood Insurance Program are not subject to municipal and county taxes as provided in O.C.G.A. § 33-8-8.2(a).

This is in response to your request for an official opinion regarding whether flood insurance premiums collected by private insurance companies associated with the National Flood Insurance Program ("NFIP") are exempt from local taxation as provided in O.C.G.A. § 33-8-8.2(a). It is my official opinion that flood insurance premiums collected pursuant to the NFIP are not subject to municipal and county tax liability.

In 1968 Congress authorized the National Flood Insurance Program to provide an opportunity for property owners to purchase from the federal government insurance protection from flood damage. 42 U.S.C. § 4001 et seq. The Federal Insurance Administration ("FIA") is the federal agency charged with the responsibility of administering the NFIP. Prior to 1983, all policies issued under the NFIP were issued and signed by the FIA. In 1983, the FIA, pursuant to 42 U.S.C. § 4071, authorized private insurance companies to write the government's Standard Flood Insurance policy on their own paper under a program which they named the "Write Your Own" ("WYO") program. These WYO companies act as "fiscal agents of the United States." Id.

Under the WYO program, private insurance companies provide flood insurance policies to consumers in their respective states. Although the WYO companies issue flood insurance policies in their own names, the policy terms, underwriting guidelines, and premium rates are determined by the federal government. Seventy percent of the premiums collected are set aside solely for the payment of claims and claims-adjusting expenses in connection with the WYO policies. These premiums must be deposited into a bank account that does not contain any other company funds and the account may be used only for the purpose of conducting the WYO operation. This account is periodically cleared by the federal government. If additional funds are needed for the payment of claims, the companies are permitted to draw on a federal letter of credit with which they can receive such funds as are necessary from the United States Treasury. The companies are not exposed to any risks from the claims. The remaining thirty percent of the premiums are retained by the WYO company for the sole purpose of paying administrative costs, agents' commissions and state premium taxes.

The contracts between the FIA and the WYO companies provide for reimbursement of state premium taxes. However, reimbursement for local taxes and other assessments is not addressed. The FIA takes the position that the flood insurance premiums collected by the WYO companies are not subject to local taxes.

In Georgia, counties and municipal corporations are authorized to levy premium taxes pursuant to O.C.G.A. § 33-8-8.2(a) which provides: "Counties and municipal corporations are authorized to levy tax at a rate not to exceed 2.5 percent upon the gross direct premiums of all foreign, alien, and domestic insurance companies doing business in this state other than life insurance companies."

For the purpose of this opinion it is assumed that the flood insurance premiums are "gross direct premiums." Thus, in order for counties and municipalities to levy taxes on the flood insurance premiums collected by WYO companies pursuant to O.C.G.A. § 33-8-8.2(a), the flood insurance premiums must be premiums "of" the WYO companies.

The language in the National Flood Insurance Act, which refers to the WYO companies as "fiscal agents of the United States," clearly establishes that WYO companies merely collect flood insurance premiums on behalf of the FIA. 42 U.S.C. § 4071. The operation of the program, the strict separation of accounts, and the oversight of the program by the federal government further support this position. The flood insurance premiums collected by the WYO companies do not belong to the WYO companies, but belong to the federal government for implementation of a federal program. Official Code of Georgia Annotated § 33-8-8.2(a) does not apply to the federal government because it is not an "insurance compan[y] doing business in this state."

Therefore, it is my official opinion that O.C.G.A. § 33-8-8.2(a) is not applicable to flood insurance premiums collected by WYO companies and municipal and county taxes may not be levied on these premiums.